With close to half of the overall silver demand coming from industrial applications, the current worries about a Chinese slowdown, has hurt the white metal more than gold as investors look for hedges against rising price pressures seen almost everywhere, most recently in the surging cost of energy. So, in short, a higher gold-silver ratio is the markets way to express worries about inflation and China growth.
Gold is not only a metal which tends to respond to movements in the dollar and yields, both of which continue to be price negative. It is also used by fund managers as a hedge or diversifier against risks across financial assets, but with financial assets and market valuations near all-time highs, this demand has faded and become a recent source of selling.
Investors believing the current market confidence and subdued inflation outlook, signaled through the bond market to be misplaced, the cost of buying insurance against it continues to get cheaper with gold presently trading near the lower end of its year-long range. Over the coming weeks we will watch yield developments closely with rising yields potentially raising renewed uncertainty across other asset classes, such as interest rate-sensitive growth stocks. Also, the continued surge in the cost of most energy sources may ultimately support our non-transitory views on inflation.